A

TPP REPORT

ON

‘SANCTION OF AGRICULTURAL LOANS’

‘STATE BANK OF INDIA, UKLANA MANDI, HISAR

BRANCH CODE 002499

FOR FULFILING THE REQIREMENT OF THE AWARD OF DEGREE

OF MBA 5 YEAR

Subject: TPP (MBA-883)

Under the Supervision of

Mr. N.B. GAIKWAD

SUBMITTED TO:- SUBMITTED BY :-

The Director ASHISH SONI

9TH SEMSTER

ROLL NO. 35

Registration no.

(09-UD-705)

INSTISTUTE OF MANAGEMENT STUDIES

KURUKSHETRA UNIVERSITY, KURUKSHETRA

(September 2013)

PREFACE

This project report has been prepared as per the requirement of the syllabus of MBA course

structure under which the students are the required to undertake project.

It was a first-hand experience for us as that we were exposed to the professional

Set-up and were facing the market, which was really a great experience. During project

period, I had very touching experiences. When business is involved, experiences counts a lot,

as we know, experience are an instrument, which leads towards success.

Now I take this opportunity to present the project report and sincerely hope that it will be as

much knowledge enhancing to the readers as it was to use during the fieldwork and the

compilation of the report.

ASHISH SONI

ACKNOWLEDGEMENT

Gratitude is the hardest of emotions to express and often one does not find adequate words to

convey that entire one feels. Perhaps it is natural to every human being that when you are

really thankful and sincerely want to express you gratitude towards someone, just you run out

of words; in spite of healthy vocab.

First of all I would like to thanks Dr. M.K. JAIN (Director, Institute Of Management

Studies, KUK who gave me opportunity for training by making a part of the esteem

organization.

I express my sincere deep gratitude to Mr N.B. GAIKWAD (FIELD OFFICER) under

whose guidance I could achieve my project completion and contributing their skills and

creativity, which made my report appealing and attractive.

Besides, I would like to thanks My family members for their constant cooperation and help.

In the absence of above mentioned people, this project would not have been in the present

style.

ASHISH SONI

DECLARATION

I hereby declare that this project titled “To study about agriculture loan (Pre & Post

sanction & schemes)” is my own work done under SBI, BRANCH UKLANA MANDI as a

part of my winter training. This work is originally done by me and I have not replicated it

from any other source. Though I have taken few references which have been mentioned in the

bibliography.

ASHISH SONI

CONTENTS

Chapter No. Title of the Chapter Page No.

1. Introduction of banking sector 7-11

A) Bank

B) History

C) Economic function

D) Entry regulation

2. Introduction of State Bank of India 12-18

A) History

B) Organisation Structure

C) Vision

D) Mission

E) Products and services

3. Assignment taking during training 19-48

-Operational SECTOR

A) Agricultural sector

a) Agri. pre-sanction

-Assessment and

Sanction

-appraisal process

b) Agriculture Credit schemes

B) Agri. post sanction

a) Sanction of credit facilities

b) Documentation4

c) Control report

d) Inspection

e) Recovery of bank dues

f) Insurance

C) Findings

4. SWOT analysis, Suggestion & Conclusion 49-52

References 53

CHAPTER: I

INTRODUCTION TO BANKING SECTOR

A) Bank

A bank is license by a government. Its primary activity is to lend money. Many other

financial activities were allowed over time. For example banks are important players in

financial markets and offer financial services such as investment funds In some countries

such as Germany, banks have historically owned major stakes in industrial corporations while

in other countries such as the United States banks are prohibited from owning nonfinancial

companies. In Japan, banks are usually the nexus of a cross-shareholding entity known as the

zaibatsu. In France, banc assurance is prevalent, as most banks offer insurance services (and

now real estate services) to their clients. The level of government regulation of the banking

industry varies widely, with counties such as Iceland, the United Kingdom and the United

States having relatively light regulation of the banking sector, and countries such as China

having relatively heavier regulation (including stricter regulations regarding the level of

reserves).

B) History

Banks have influenced economies and politics for centuries. Historically, the primary purpose

of a bank was to provide loans to trading companies. Banks provided funds to allow

businesses to purchase inventory, and collected those funds back with interest when the

goods were sold. For centuries, the banking industry only dealt with businesses, not

consumers. Banking services have expanded to include services directed at individuals, and

risks in these much smaller transactions are pooled.

C) Economic functions:-

The economic functions of banks include:

1. Issue of money, in the form of bank notes and current accounts subject to cheque or

payment at the customer's order. These claims on banks can act as money because they are

negotiable and/or repayable on demand, and hence valued at par. They are effectively

transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee

may bank or cash.

2. Netting and settlement of payments – banks act as both collection and paying agents for

customers, participating in interbank clearing and settlement systems to collect, present, be

presented with, and pay payment instruments. This enables banks to economise on reserves

held for settlement of payments, since inward and outward payments offset each other. It also

enables the offsetting of payment flows between geographical areas, reducing the cost of

settlement between them.

3. Credit intermediation – banks borrow and lend back-to-back on their own account as

middle men.

4. Credit quality improvement – banks lend money to ordinary commercial and personal

borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes

from diversification of the bank's assets and capital which provides a buffer to absorb losses

without defaulting on its obligations.

5. Maturity transformation – banks borrow more on demand debt and short term debt, but

provide more long term loans. In other words, they borrow short and lend long. With a

stronger credit quality than most other borrowers, banks can do this by aggregating issues

(e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals).

D) Entry regulation

Currently in most jurisdictions commercial banks are regulated by government entities and

require a special bank licence to operate. Usually the definition of the business of banking for

the purposes of regulation is extended to include acceptance of deposits, even if they are not

repayable to the customer's order—although money lending, by itself, is generally not

included in the definition. Unlike most other regulated industries, the regulator is typically

also a participant in the market, i.e. a government-owned (central) bank. Central banks also

typically have a monopoly on the business of issuing banknotes. However, in some countries

this is not the case. In the UK, for example, the Financial Services Authority licenses banks,

and some commercial banks (such as the Bank of Scotland) issue their own banknotes in

addition to those issued by the Bank of England, the UK government's central bank.

Some types of financial institution, such as building societies and credit unions, may be

partly or wholly exempt from bank licence requirements, and therefore regulated under

separate rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically

include:

1. Minimum capital

2. Minimum capital ratio

'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior

officers. The requirements for the issue of a bank licence vary between jurisdictions but

typically include:

3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior

officers.

4. Approval of the bank's

5. Business plan as being sufficiently prudent.

The economic functions of banks include:

6. Issue of money, in the form of banknotes and current accounts subject to cheque or

payment at the customer's order. These claims on banks can act as money because they are

negotiable and/or repayable on demand, and hence valued at par. They are effectively

transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the

payee may bank or cash.

7. Netting and settlement of payments – banks act as both collection and paying agents for

customers, participating in interbank clearing and settlement systems to collect, present, be

presented with, and pay payment instruments. This enables banks to economise on reserves

held for settlement of payments, since inward and outward payments offset each other. It also

enables the offsetting of payment flows between geographical areas, reducing the cost of

settlement between them.

8. Credit intermediation – banks borrow and lend back-to-back on their own account as

middle men.

9. Credit quality improvement – banks lend money to ordinary commercial and personal

borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes

from diversification of the bank's assets and capital which provides a buffer to absorb losses

without defaulting on its obligations. However, banknotes and deposits are generally

unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding

it needs to continue to operate, this puts the note holders and depositors in an economically

subordinated position.

10. Maturity transformation :-Banks borrow more on demand debt and short term debt, but

provide more long term loans. In other words, they borrow short and lend long. With a

stronger credit quality than most other borrowers, banks can do this by aggregating issues

(e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and

redemptions of banknotes), maintaining reserves of cash, investing in marketable securities

that can be readily converted to cash if needed, and raising replacement funding as needed

from various sources (e.g. wholesale cash markets and securities markets).

Banking law is based on a contractual analysis of the relationship between the bank (defined

above) and the Customer:- defined as any entity for which the bank agrees to conduct an

account.

The law implies rights and obligations into this relationship as follows:

11. The bank agrees to promptly collect the cheques deposited to the customer's account as

the customer's agent, and to credit the proceeds to the customer's account.

12. The banks have a right to combine the customer's accounts, since each account is just an

aspect of the same credit relationship.

13. The bank has a lien on cheques deposited to the customer's account, to the extent that the

customer is indebted to the bank.

14. The bank must not disclose details of transactions through the customer's account—unless

the customer consents, there is a public duty to disclose, the bank's interests require it, or the

law demands it.

15. The banks must not close a customer's account without reasonable notice, since cheques

are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the

customer and the bank. The statutes and regulations in force within a particular jurisdiction

may also modify the above terms and/or create new rights, obligations or limitations relevant

to the bank-customer relationship.

Currently in most jurisdictions commercial banks are regulated by government entities and

require a special bank licence to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to

include acceptance of deposits, even if they are not repayable to the customer's order—

although money lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the

market, i.e. a government-owned (central) bank. Central banks also typically have a

monopoly on the business of issuing banknotes. However, in some countries this is not the

case. In the UK, for example, the Financial Services Authority licences banks, and some

commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to

those issued by the Bank of England, the UK government's central bank.

Some types of financial institution, such as building societies and credit unions, may be partly

or wholly exempt from bank licence requirements, and therefore regulated under separate

rules.

E) Major competitor

Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC Bank,

Axis Bank, Bank of India, Punjab National Bank and Bank of Baroda. However in terms of

average market share, SBI is by far the largest player in the market.

CHAPTER 2

2. INTRODUCTION OF STATE BANK OF INDIA

State Bank of India (SBI) is a multinational banking and financial services company based

in India. It is a government-owned corporation with its headquarters in Mumbai,

Maharashtra. As of December 2012, it had assets of US$501 billion and 15,003 branches,

including 157 foreign offices, making it the largest banking and financial services company

in India by assets.

The bank traces its ancestry to British India, through the Imperial Bank of India, to the

founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian

Subcontinent. Bank of Madras merged into the other two presidency banks—Bank of

Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in turn became the

State Bank of India. Government of India nationalised the Imperial Bank of India in 1955,

with Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In

2008, the government took over the stake held by the Reserve Bank of India. SBI was ranked

285th in the Fortune Global 500 rankings of the world's biggest corporations for the year

2012.

SBI provides a range of banking products through its network of branches in India and

overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional hubs

and 57 Zonal Offices that are located at important cities throughout the country.

SBI is a regional banking behemoth and has 20% market share in deposits and loans among

Indian commercial banks.

The State Bank of India was named the 29th most reputed company in the world according to

Forbes 2012 rankings. and was the only bank featured in the "top 10 brands of India" list in

an annual survey conducted by Brand Finance and The Economic Times in 2012.

A) History

Seal of Imperial Bank of India

The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of

Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of

Bengal was one of three Presidency banks, the other two being the Bank of Bombay

(incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All

three Presidency banks were incorporated as joint stock companies and were the result of the

royal charters. These three banks received the exclusive right to issue paper currency till 1861

when with the Paper Currency Act, the right was taken over by the Government of India. The

Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity took

as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock

company but without Government participation.

The All India Rural Credit Survey Committee proposed the takeover of the Imperial Bank of

India, and integrating with it, the former state-owned or state associate banks. Subsequently,

an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of

India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India

more powerful, because as much as a quarter of the resources of the Indian banking system

were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks)

Act was passed in 1959.

The State Bank of India emerged as a pacesetter, with its operations carried out by the 480

offices comprising branches, sub offices and three Local Head Offices, inherited from the

Imperial Bank. Instead of serving as mere repositories of the community's savings and

lending to creditworthy parties, the State Bank of India catered to the needs of the customers,

by banking purposefully.

State Bank of India (SBI) (LSE: SBID) is the largest bank in India. The bank traces its

ancestry back through the Imperial Bank of India to the founding in 1806 of the Bank of

Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government

of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India

taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took

over the stake held by the Reserve Bank of India.

Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India,

which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On

1 July 1955, the Imperial Bank of India became the State Bank of India. The government of

India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict

of interest because the RBI is the country's banking regulatory authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made

eight state banks associates of SBI. A process of consolidation began on 13 September 2008,

when the State Bank of Saurashtra merged with SBI.

SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which

SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National

Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired

Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the

patronage of Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small

moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a

Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was

the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in

Kerala.

The State Bank of India and all its associate banks are identified by the same blue keyhole

logo. The State Bank of India word mark usually has one standard typeface, but also utilises

other typefaces.

B) Organisational Structure

Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture

of Public sector, Private sector, Co-operative banks and foreign banks. The private sector

banks are further spilt into old banks and new banks.

Scheduled Banks

Scheduled Commercial Banks

Public Sector Banks

Private Sector Banks

Foreign Banks

Regional

Rural Banks

Nationalized banks

SBI & its Associates

Old private sector Banks

New private sector Banks

Scheduled Co-operative Banks

Scheduled urban cooperative Bank

Scheduled State co-operative Banks

Current Board of Directors

As on 14 January 2013, there are fifteen members in the SBI board of directors:

Pratip Chaudhuri (Chairman)

Hemant G. Contractor (Managing Director)

Arundhati Bhattacharya (Managing Director & Chief Financial Officer)

A. Krishna Kumar (Managing Director)

S. Visvanathan (Managing Director)

S. Venkatachalam (Director)

D. Sundaram (Director)

Thomas Mathew (Director)

S.K. Mukherjee (Officer Employee Director)

Rajiv Kumar (Director)

Jyoti Bhushan Mohapatra (Workmen Employee Director)

Deepak Amin (Director)

Harichandra Bahadur Singh (Director)

MISSION, VISION AND VALUES

C) MISSION STATEMENT: To retain the Bank’s position as premiere Indian Financial

Service Group, with world class standards and significant global committed to excellence in

customer, shareholder and employee satisfaction and to play a leading role in expanding and

diversifying financial service sectors while containing emphasis on its development banking

rule.

D) VISION STATEMENT:

¨ Premier Indian Financial Service Group with prospective world-class Standards of

efficiency and professionalism and institutional values.

¨ Retain its position in the country as pioneers in Development banking.

¨ Maximize the shareholders’ value through high-sustained earnings per

Share.

¨ An institution with cultural mutual care and commitment, satisfying and Good work

environment and continues learning opportunities.

VALUES:

¨ Excellence in customer service

¨ Profit orientation

¨ Belonging commitment to Bank

¨ Fairness in all dealings and relations

¨ Risk taking and innovative

¨ Team playing

¨ Learning and renewal

¨ Integrity

¨ Transparency and Discipline in policies and systems.

E) PRODUCTS AND SERVICES:

PRODUCTS:

State Bank Of India renders varieties of services to customers through the following

products:

Personal Loan Product:

SBI Term Deposits

SBI Recurring Deposits

SBI Housing Loan

SBI Car Loan

SBI Educational Loan

SBI Personal Loan

SBI Loan For Pensioners

Loan Against Mortgage Of Property

Loan Against Shares & Debentures

Rent Plus Scheme

Medi-Plus Scheme

SERVICES :

DOMESTIC TREASURY

SBI VISHWA YATRA FOREIGN TRAVEL CARD

BROKING SERVICES

REVISED SERVICE CHARGES

ATM SERVICES

INTERNET BANKING

E-PAY

E-RAIL

RBIEFT

SAFE DEPOSIT LOCKER

GIFT CHEQUES

Other SBI service points

SBI has 27,000+ ATMs (25,000th ATM was inaugurated by the then Chairman of State Bank

Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI group (including

associate banks) has about 45,000 ATMs. SBI has become the first bank to install an ATM at

Drass in the Jammu & Kashmir Kargil region. This was the Bank's 27,032nd ATM on 27

July 2012.

CHAPTER-3

3. ASSIGNMENT TAKING DURING TRAINING

OPERATIONAL SECTOR

AGRICULTURAL SECTOR

I. Pre-sanction

II. Post-sanction

1. PRE SANCTION CREDIT PROCESS

a. WHY AGRICULTURE LOAN?

To provide focused attention to the banking requirement of the agriculture sector.

To help in making agriculture a commercial proposition.

To fill credit gaps and make fund available at the right time, in adequate quantity.

To help in increasing agriculture production and income.

To aim at integrated development of agriculture.

b. List some of the agriculture activities for which SBI offers

agriculture loans.

Crop Production

Buying farm machinery

Construction of Cold Storage and godawns

Transportation of Crop from the field to the market Land development

1.1 TYPES OF AGRICULTURE CREDIT SCHEME

CROP LOAN/ KISAN CREDIT CARD KISAN GOLD CARD

PRODUCE MARKETING LOAN LAND PURCHASE SCHEME

GENERAL CREDIT CARD LOAN GRAMIN BHANDARAN

AGRICULTURE GOLD LOAN MINOR IRRIGATION SCHEMES

SBI KRISHAK UTHAN YOJNA FINANCE TO HORRICULTURE

A. PRODUCTION CREDIT

a) Kisan Credit Card Scheme (KCC)

i. Purpose : To extend adequate and timely support to farmers for their short term credit

needs.

ii. Who are eligible for the loan : Farmers with excellent repayment record for 2 years.

New farmers with sizeable deposits with our branches for 3 to 4 years are also

eligible.

iii. Borrowers with good trackrecord in other Banks are also eligible : Farmers who

have defaulted in repayment but have liquidated the outstandings are also eligible.

TYPES OF AGRICULUTRE

CREDIT SCHEMES

PRODUCTION CREDIT

INVESTMENT CREDIT

iv. Loan Amount: Loan amount is decided based on the cropping pattern, ancillary and

contingency needs of the farmer for the full year. 90 % of the cost of cultivation

(Scale of

Finance) is given as loan per acre. 100 % of the cost is available as loan up to Rs.50, 000/-

and 85 % of the cost is available as loan above Rs. 1, 00,000/-

Loan Amount: Security to be furnished

up to Rs. 50,000: Hypothecation of crops.

Above Rs. 50,000 and up to Rs.1, 00,000 1. Hypothecation of crops

2. Mortgage of lands or Third party guarantee

Above Rs.1, 00,000: 1. Hypothecation of crops

2. Mortgage of lands or Third party guarantee

For tobacco, Sugarcane and 1. Hypothecation of crops

other crops under tie-up 2. a. Hypothecation of crops

arrangement with boards/ b. Mortgage of lands or Third party guarantee

factories/ companies

i. Up to Rs. 1 Lac

ii. Above one lac

v. How do you repay: It is a revolving cash credit limit with any number of

withdrawals and repayments.

vi. How to apply for this loan: You may contact our nearest branch for the application

or even talk to the marketing officers visiting your village and produce the land

documents. Loan amount is decided based on the cropping pattern, ancillary and

contingency needs of the farmer for the full year. 90 % of the cost of cultivation

(Scale of Finance) is given as loan per acre. 100 % of the cost is available as loan upto

Rs.50,000/- and 85 % of the cost is available as loan above Rs. 1,00,000/-

vii. Documents you need to provide: Land records to ascertain cultivation rights.

Average under different crops Sources of other borrowings eg. Co-operative Societies

and Banks.

viii. Disbursement of the loan : As per the cultivation requirements of the crop the loan

amount is disbursed in cash and kind (for fertilizers, pesticides etc)

b) PRODUCE MARKETING LOAN

i. PURPOSE : To meet short term credit requirement to adjust/repay the outstanding

crop

Loan/KCC limit availed by farmers from the bank and to procure better price by

storing farm produce and selling it at favourable price within a specified period.

ii. ELIGIBILITY : Loan will be available only to those farmers who have availed

themselves of crop loan/KCC facility/composite cash credit limit from our Bank only

for raising

the concerned crops in that season which should not be overdue for repayment.

iii. NATURE & EXTENT OF FACILITY: Short term loan. Maximum up to Rs.5 lakh.

The loan would be twice the amount of crop loan taken by farmer or 75 per cent of the

value of the produce calculated at the Government announced procurement prices,

whichever is lower.

iv. REPAYMENT OF LOAN : Produce (Marketing) Loan shall be repaid within a

maximum period of twelve months from the date of its disbursement.

c) GENERAL CREDIT CARD LOAN

i. Purpose

The scheme is to provide hassle-free credit to our customers based on the assessment

of cash flow without insistence on security, purpose or end-use of the credit.

ii. Who are eligible for the loan?

Eligibility:

i. All our existing customers with the branch having satisfactorily conducted deposit

accounts including no frills deposit accounts in our books; say, for the last 6 months,

or so, and / or loan accounts classified as standard assets will be eligible for availing

loan under the scheme.

ii. GCC facility should, however, not be extended to the KCC borrowers.

iii. Loan amount Maximum Rs 25000 /

iv. Security: Nil

v. How to repay the loan

Account will be in the nature of cash credit. The outstanding amount in the GCC

should be cleared in full when the applicant is fluid with cash which may be at yearly/

half yearly / quarterly / monthly intervals based on the occupation of the applicant /

his family. In case the entire amount is not repaid a minimum of 20 % of the amount

due along with upto date interest debited should at least be repaid.

vi. How to apply for this loan

you may contact our nearest branch or talk to the marketing officers visiting your

village.

d) AGRICULTURE GOLD LOAN

i. Purpose 

Bank extends hassle free finance to farmers / agriculturists against Gold Ornaments /

gold wares to increase their liquidity to meet crop production expenses, Investment

expenses related to agriculture and / or allied agricultural activities.

ii. Eligibility

Any person engaged in agriculture or allied activities as well as persons engaged in

activities permitted to be classified under agriculture.

iii. Quantum of Loan

Upto 70% of the value of the ornaments .Value will be as advised by the bank to the

branches periodically.

iv. Security

Pledge of gold ornaments.

v. How do you repay

Credit / Overdraft: Like KCC, it is a running account for a period of 3 years.

vi. Demand Loan / Term Loan : The repayment period of the loan should be fixed so as

to coincide with the harvesting and marketing season / generation of income from the

activity, allowing 2 to 3 months time after harvesting to market the produce and

realize the proceeds. However, the total period will not generally exceed one year

from the disbursement of the loan in the case of short-term loan / production credit

and 36 months in other cases.

vii. How to apply for this loan

Contact your nearest Branch engaged in Agricultural advance.

e) KRISHAK UTHAAN YOJNA

i. Purpose

This scheme is to provide short term production and consumption credit to meet

Genuine requirements of tenant farmers, share croppers and oral lessees who do not

have recorded land records and where there is no written undertaking/ document

available to substantiate raising of crops by the tenant farmer/ share cropper/oral

lessee. It will help increase their income from agriculture production activities.

ii. Who are eligible?

Landless labourers, share croppers, tenant farmers, oral lessees, (also covering oral

tenants & small farmers) having no recorded land records are eligible .They should

have a permanent residential address proof & have been residing at the lace for at

least past 2 years.

• Migratory tillers are not eligible under the scheme.

iii. Loan amount

Maximum of Rs 50000/ .out of which maximum consumption credit will be Rs

10000/

iv. What documents you need to provide

(1) Proof of residence

(2) Proof of identity

(3) Affidavit in the prescribed format, duly notarized

v. Security: Nil

vi. How do you repay:

You should route the sale proceeds through the cash credit account

vii. How to apply for this loan

You may contact our nearest branch or even talk to the marketing officers visiting

your village.

b) INVESTMENT CREDIT

a) KISAN GOLD CARD

i. Purpose: To sanction hassle free term loans to farmers having excellent repayment

record. Investment credit for which term loans are ordinarily sanctioned are covered.

Consumption loan to meet domestic expenses like children’s education, marriage,

medical expenses etc. are also be included to the extent of 20 % of limit.

ii. Who are eligible for Term Loans:

Farmers with excellent repayment record for at least past 2 years. New farmers with sizeable

deposits with our branches for 3 to 4 years. Good borrowers with other Banks. Farmers who

have defaulted in repayment but have liquidated the out standings. Farmers who have closed

accounts without any default in the last three years but are not our current borrowers.

i. Loan Amount : Loan amount is fixed on the basis of 5 times annual farm income or

50% of the value of the land mortgaged as collateral security minus term loan out

standings whichever is more subject to a maximum of Rs.5 lacs.

ii. Documents you need to provide: Land records other than that is already given to the

Bank viz. like record of rights / encumbrance if required.

iii. Security

Amount of Loan Security to be Furnished Hypothecation of assets financed

A). Where movable assets

are not created (eg.

Dug wells ,development of

land etc.) a) Personal Guarantee

a) Up to Rs. 10,000/- b) b)i. Personal Guarantee

Above Rs.10,000/- ii Mortgage of land

B). Where movable assets i. Hypothecation of assets financed

are created (pump set, ii. Mortgage of lands or Third party

Pipeline etc.) guarantee.

a) Hypothecation of the assets created

a) up to Rs.50,000/-

b) i. Hypothecation of the assets created

ii. Mortgage of land / other property

or third party guarantee.

b) Above Rs.50, 000/- to Rs.

1 lac c) i. Hypothecation of the assets

created

c) Above Rs. 1 lac ii. Mortgage of land or other property

i. How do you Repay : Repayment of loan will be in quarterly/half yearly / yearly

instalments

depending on the harvest of the crops or the liquidity created by the

agriculture activity undertaken.

ii. How to apply for this loan : You may contact our nearest branch for the application

or even talk to the marketing officers visiting your village and produce the land

documents.

b) Land Purchase Scheme

i. Purpose: Loan to small and marginal farmers / landless labourers for purchase of

agricultural land.

ii. Eligibility: Small/marginal farmers, tenants, share-croppers owning less than 5 acres

of unirrigated / 2.5 acres irrigated land in their own name and landless agricultural

labourers, with record of prompt repayment of loans, are eligible to avail this loan.

Own land before and after purchase should not exceed 5 acres unirrigated / 2.5 acres

irrigated land.

iii. Loan Amount: Maximum loan amount under the scheme will be Rs.5 lac. Credit

facilities for development of land, irrigation facilities and for cultivation of crops will

also be available. A farmer will be required to contribute minimum 15 percent of total

cost as margin from his own resources.

iv. Security: Land to be purchased with Bank finance will be mortgaged as security. No

other security will be insisted upon.

v. Rate of Interest: As applicable to Agricultural Term Loans.

vi. How do you Repay: Repayment of loan will be half yearly / yearly installments

depending on the harvest of the crops or the liquidity created by the agriculture

activity undertaken over a period of 10 years. Adequate gestation period will be

allowed for development of land.

vii. How to apply for this loan : You may contact our nearest branch for the application

or even talk to the marketing officers visiting your village and produce the land

documents.

c) GRAMIN BHANDARAN YOJNA

i. Purpose

This scheme is for creating scientific storage capacity in the rural areas for storing

farm produce ,thereby prevent distress sale of produce by the farmers after harvest ,by

promoting pledge financing and marketing credit.

ii. Who are eligible for the loan?

    1.  Individuals / Farmers. Quality cum inputs testing laboratories.

    2.  Proprietary and partnership terms..

    3.  Co-operatives, Agro-processing co-operative societies.

    4.  Companies.

    5.  Corporations, Agro-Industrial corporations.

    6.  Agricultural Produce Marketing Committees..

    7.  Group of Farmers/Growers.

    8.  NGOs

    9.  Agro-Processing Corporations..

    10. Self Help Groups.

    11. Marketing Boards etc.

The godown can be constructed / located in any area outside the limits of a Municipal

Corporation area. Rural godowns located in Food Parks promoted by Ministry of

Food Processing Industries are also eligible.

iii. Loan amount

Depending on the project cost. Maximum Project cost will be Rs 1500/ to 2000/ per

tonne capacity for construction and Rs 500/ per tonne for renovation NABARD is

providing back end subsidy for the projects financed by the Banks ,depending on the

location and capacity of the godowns

Bank will finance upto 80 % of the Project cost

iv. Security: Mortgage /charge of Land and godown

v. How do you repay: The loan should be repaid in 11 years, with a grace period of one

year. Subsidy will be credited as the final instalments .

vi. How to apply for this loan?

You may contact our nearest branch or even talk to the marketing officers visiting

your village.

d) Minor Irrigation Schemes

i. Purpose : Credit for creating irrigation facilities from underground / surface water

sources All structures and equipment’s connected with it are also financed. Loans

cover various activities like digging of new wells (open/bore wells), deepening of

existing wells (traditional/in well bore), energisation of wells (oil engine/electrical

pump set), laying of pipe lines, installing drip/sprinkler irrigation system and lift

irrigation system.

ii. Who are eligible for Term Loans : All farmers having a known source of water

which can be exploited for irrigation purpose.

iii. Amount of Loan: Security to be furnished

A). Where movable assets

are not created(eg.

Dug wells, development of

land etc.

a) Upto Rs. 10,000/- a) Personal Guarantee

b) Above Rs.10,000/- b)i. Personal Guarantee ii Mortgage of land

B). Where movable assets

are created (pumpset,

pipeline etc.)

a) Upto Rs.50,000/- a) Hypothecation of the asset created

b) Above Rs.50,000/- to Rs. b) i. Hypothecation of the assets created

1 lac ii. Mortgage of land or third party guarantee

c) Above Rs. 1 lac c) i. Hypothecation of the assets created

ii. Mortgage of land

iv. How do you Repay : Repayment of loan will be in quarterly/half yearly / yearly

instalments depending on the harvest of the crops or the liquidity created by the

agriculture activity undertaken.

v. Loan amount : Upto Rs. 50,000/- 100 % of the cost of the asset / project cost is

provided as loan.Above Rs. 50,000/- upto 85 % of the cost of the asset / project is

provided as loan.

vi. Documents you need to provide : An estimate for civil works to be undertaken and

quotation for the assets to be purchased have to be submitted. Land records to

ascertain the title to the property, Geologist certificate and feasibility certificate from

the electricity board should also be submitted where relevant.

e) Finance to Horticulture

i. Purpose : Loans for development of fruit orchards like mango, chikoo, Guava,

Grapes, pomegranate, apple, lechee etc., as well as short term fruit crops (banana,

pineapple etc.), flowers in open and green houses (roses, carnation, chrysanthemums,

jasmine etc.) and vegetable crops (potato, tomato, brinjal, gourds, peas etc.) are

financed.

ii. Who are eligible for Term Loans : All farmers having cultivable lands.

iii. Loan Amount : Upto Rs. 50,000/- 100 % of the cost of the asset / project cost is

provided as loan. Above Rs. 50,000/- upto 85 % of the cost of the asset / project is

given as loan. For short term loans the loans are given under our crop loan / Kisan

Credit Card scheme and the terms applicable under these scheme are applicable for

these loans. Other requirements for long term loans are given below.

iv. Documents you need to provide: For orchard development you need to submit the

following:

i) Water and soil test report.

ii) A feasibility certificate from the local horticulture department.

iii) Land records.

iv) Quotation / estimates for the costs to be incurred.

v) If the project is large then a project report .

i. Disbursement of loan : Generally disbursements are made directly to the suppliers as

per the schedule set in your proposal.

ii. Security

Amount of Loan: Security to be Furnished

a) Upto Rs. 50,000/ Hypothecation of assets created

b) Above Rs. 50,000/- to Rs. 1 i) Hypothecation of assets created

lac ii. Mortgage of land or third party guarantee

c) Above Rs. 1 lac i. Hypothecation of the assets created

ii. Mortgage of land

i. How do you Repay : The loan repayment starts after the completion of the gestation

period varying from 4 to 7 years for different crops. Repayment commences from the

time the crop gives economic yield and is linked to the income generation of each

crop every year and varies between 7 years to 12 years.

ii. How to apply for this loan : You may contact our nearest branch for the application

or even talk to the marketing officers visiting your village and produce the land

documents.

1.1 PRE SANCTION ASSESSMENT AND

SANCTION

a) Assessment – Indicative List of Activities

Once the appraisal of a proposal is done, the proposal is sent for assessment. Following is

a list of activities to be carried out while assessing a proposal:

Review the draft proposal together with the back-up details/ notes, and the

Borrower’s application, financial statements and other reports/ documents

Examined by the Appraiser.

Interact with the Borrower and the Appraiser.

Carry out the pre-sanction visit to the applicant company and their project/ factory

site.

Peruse the financial analysis (Balance Sheet/ Operating Statement/ Ratio Analysis/

Funds Flow Statement/ Working Capital Assessment/ Project Cost and Sources/

Break-Even Analysis/ Debt Service/ Security Cover etc.) to see if this is prima facie

in order. If any deficiencies are seen, arrange with the Appraiser for the analysis on

the correct lines.

Examine critically the following aspects of the proposed exposure:

Bank’s Lending Policy and other guidelines issued by the Bank

RBI Guidelines

Background of promoters/ senior management

Inter-firm comparison

Technology in use in the Company

Market conditions

Projected performance of the Borrower vis-à-vis past estimates and

performance

Viability of the project

Strengths and Weaknesses of the borrower entity.

Proposed structure of facilities

Adequacy/ correctness of limits/ sub-limits, margins, moratorium and

repayment schedule

Adequacy of proposed security cover

Credit Risk Rating

Pricing and other charges and concessions, if any, proposed for the facilities

Risk factors of the proposal and steps proposed to mitigate the risk

Deviations proposed from the norms of the Bank and justifications therefor

Arrange with the Appraiser to draw up the proposal in the final form.

Recommendation for sanction :

Recapitulate briefly the conclusions of the appraisal and state whether the

proposal is economically viable.

Recount briefly the value of the Company’s/ Group’s connections

State whether, all considered, the proposal is a fair banking risk.

Finally, give recommendations for grant of the requisite FB and NFB credit facilities.

b) Sanction – Indicative List of Activities

After the assessment of the proposal, in case the proposal is found suitable, the

proposal is sanctioned.

A list of activities followed while sanctioning a proposal is given below:

Peruse the proposal to see if the report prima facie presents the proposal in a

comprehensive manner as required.

If any critical information is not provided in the proposal, remit it back to the

Assessor for supply of the required data/ clarifications.

Examine critically the following aspects of the proposed exposure in the light of the

o corresponding instructions in force:

Bank’s lending policy and other relevant guidelines

RBI Guidelines

Borrower’s status in the industry

Industry prospects

Experience of the Bank with other units in similar industry

Overall strength of the Borrower

Projected level of operations

Risk factors critical to the exposure and adequacy of safeguards proposed

there against

Value of the existing connection with the Borrower

Credit Risk Rating

Security, pricing, charges and concessions proposed for the exposure and

covenants stipulated vis-à-vis the risk perception

c) Sanction

Accord sanction of the proposal on the terms proposed or by stipulating modified or

additional conditions/ safeguards

OR

Defer decision on the proposal and return it for additional data/ clarifications

OR

Reject the proposal, if it is not acceptable, setting out the reasons for that.

d)General Guidelines for Pre-Sanction Process

Functional Responsibilities

Wherever two functionaries are assigned, the functions relating to a single stage (for

example Appraisal), they will carry out all the functions relating to this stage either

Individually or jointly. Following are the functional responsibilities:

The senior functionary will decide the requirement in this regard.

o Each of them will carry the responsibility for discharging the functions with due diligence.

o Wherever a functionary or an Officer at a Controlling Office is assigned the task of

additional assessment’, such functionary/ Officer will carry out all the functions required for

assessment, either individually or jointly with the functionaries at the Branch as required.

o The functionary/ Officer at the Controlling Office will decide the requirement in this

regard.

o The additional assessment functions will not ordinarily require for each case a presanction

visit and/ or interaction with the Appraiser/ Borrower.

o However, if they are considered necessary, they will also be performed as part of additional

assessment.

o At the appraisal stage, the Appraiser will then review the proposal (including background

papers) in full form, i.e. complete in all respects as a draft.

o The Assessor will then review the proposal and if he finds that additional information/

comments or modified comments are to be furnished, he will arrange with the Appraiser for

such addition/ modification to be incorporated in the draft proposal.

o An integrated final proposal will thereafter be submitted.

o In cases where material changes in a proposal/ report are made by the Assessor, the

Appraiser may, if he so desires, place on record a copy of the draft proposal/ report for later

reference.

o When an Official who is to carry out additional assessment finds that the proposal received

is to be re-drafted, the Official will prepare a fresh proposal and submit it to the next

authority. The proposal received from the Assessor will be held only as part of the record.

o In respect of proposals which require sanction separately of different facilities (e.g., FB and

NFB) by authorities at different levels, the highest level authority in the sanction trail will

sanction all the facilities recommended in the proposal or as advised from time to time in the

‘Scheme of Delegation of Financial Powers’.

o The three stages involved in Pre-sanction Credit Process (PCP) will generally be handled

by three different functionaries.

e) Administrative Clearance

While exercising financial powers vested in them, the Bank’s officials may have to seek prior

administrative clearance (AC) from higher authorities as laid down by Credit Policy and

Planning Department (CPPD) from time to time. The system of AC affords an opportunity

for prioritization of the banking business from a macro perspective. However, a credit

decision on any proposal has to be viewed from the overall merits of each case and not

merely on the basis of the AC. The AC accorded by Circle Credit Committee (CCC)/ Central

Office Credit Committee (COCC) is valid for 8 weeks. In case the credit proposal is not

submitted to the appropriate Sanctioning Authority (SA) within this period, a fresh AC will

have to be obtained. The credit facilities should be released only after the appropriate

authority sanctions the relative facilities. However, in cases where there is an urgent need for

release of credit facilities in anticipation of sanction, the CCC should accord prior clearance

to the release of credit facilities, in respect of advances that fall within the CCC sanctioning

powers. In case release of credit facilities in anticipation of sanction is sought in respect of

advances requiring sanction by ECCB, the proposal has to be accorded prior AC by the

Chairman. Regular credit proposals and rehabilitation proposals for sanction by/

recommendations of the CCC should be prepared in conformity with the terms of AC given

for the proposal and submitted within the validity of the AC. Any deviation in the proposal

should be clearly highlighted. Where there is no deviation, a certificate to this effect should

be incorporated in the proposal.

f) Concurrent Borrowing

Before sanctioning any credit limit, the Branch should ensure that the applicant is not

enjoying similar or other credit facilities with other banks. Normally, multiple borrowing/

multiple facilities to the same Borrower from two or more banks should not be allowed. In

case the applicant is found to have any credit facility from any other bank or financial

institution (FI), detailed information should be called from the concerned bank/ FI. Along

with the loan application, the applicant should submit a declaration regarding the existing

credit arrangements. He should also furnish an undertaking that stocks will not be

hypothecated to any other bank without prior approval of the Bank. Such multiple borrowings

by persons, without the Bank’s written consent, should be viewed as financial indiscipline. In

case it is subsequently found that the Borrower had made a false statement in regard to

concurrent borrowings, the advances will be recalled forthwith. As far as possible, Borrower

should be advised to restrict their borrowings to one Bank only.

Applicants seeking credit facilities of Rs. 25 lacs or above, should furnish information, in the

loan application, about all pending litigations, which have been initiated by another financer

including banks against applicants, their partners, directors, etc. for recovery of dues.

Similarly, in the loan proposals, this information should also be furnished in the appraisal

submitted for sanction of credit limits of Rs. 25 lacs and above under ‘Other Details’, along

with information on RBI Defaulters List/ ECGC Caution List.

g) Sanction within Financial Powers

Sanctioning Authority should ensure that the sanction is within the powers delegated to him

and that the sanction is reported to a higher authority as required in the ‘Scheme of

Delegation of Financial Powers.’ The Controlling Offices should diligently scrutinize the

Control Returns. If they notice any unusual feature, they should initiate suitable follow-up

action to rectify the position with a view to protecting the Bank’s interest. Non-submission of

Control Returns in time should be viewed seriously. Necessary steps should be initiated to

obtain the pending returns in future.

h) Prescription of Terms and Conditions As a measure of effective

follow-up, the Bank stipulates a number of compulsory covenants and optional covenants

in respect of all advances.

The covenants relate to:

· The right of examination of Borrower’s books and inspection of factories either by

the Bank’s officers or by experts/ Management Consultants of the Bank’s choice.

The restriction with regard to change in capital structure, scheme of amalgamation/

reconstruction, scheme of expansion or addition to FA, investment by way of share

capital/ loans/ advances/ deposits in other concerns, borrowing arrangements with

other banks and FIs, guarantee obligations and declaration of dividends.

The restriction with regard to (a) Repayment of deposits from friends and relatives of

promoters/ directors without Bank’s prior permission, and (b) Payment of interest on

those deposits.

The covenants also relate to:

The restriction with regard to transfer of controlling interest in the Company or

drastic change in the Company’s management set-up without Bank’s prior

permission.

Borrower’s consent permitting banks/ FIs to share or publish information about the

Borrower’s account in case of default.

The optional covenants relate to nomination of the Bank’s representatives on the

Company’s Board, ceiling in regard to dividend declaration, withdrawal of money by

principal shareholders/ Directors, minimum NWC, insurance cover for standing

charges and loss of profit arising from stoppage of production, informing the Bank

about the happening of any significant event likely to have an effect on the working

of the Company or its subsidiaries:

Standard Covenants

Negative Covenants

Letter from Promoters

Credit facilities to Companies whose Directors figure in RBI’s List of Defaulters.

Apart from the usual Terms and Conditions of sanction of credit as contained in

the Standard covenants of the Bank’s loan documents, depending on the degree of financial

discipline required to be imposed in respect of individual cases, reasonable additional

conditions as are considered desirable may be prescribed. However, officials are required to

ensure that while recommending or sanctioning a loan, onerous Terms and Conditions which

are difficult for the Borrower to fulfil are not stipulated in the first place. The question of

stipulating special covenants in any particular case should be fully discussed with concerned

Borrower, explaining the implications thereof so as to avoid the necessity for modifying them

subsequently. All such special covenants to be stipulated in individual cases should be

indicated in the Appraisal Memorandum highlighting the rationale behind their stipulation. If

the risk element is high, the credit worthiness of the proposal may be reviewed afresh. In

order to enable the Bank’s operating functionaries ensure meticulous and timely compliance

of all the Terms and Conditions governing loans/ advances, such Terms and Conditions

should be clearly spelt out as indicated below:

a. The standard Terms and Conditions pertaining to the limit of the loan/ advance

(e.g.

b. Security, margin, interest, insurance, etc.) should be mentioned in one

particular section of the proposal. Whenever, some of the conditions are

proposed to be fulfilled after disbursement of a facility, this should be so spelt

out (e.g. EM of immovable property by way of collateral after release of

limits).

c. Other proposal specific T&C stipulated by the Appraising/ Assessing officials

should be recapitulated and listed separately at the end of the proposal

segregating the pre- and post-disbursement conditions clearly.

d. Any additional T&C stipulated by the Controllers or the Sanctioning Authority

should be specified in the Sanction Letter to the Branch as pre- or post-

disbursement conditions in clear terms.

e. Other observations, not specified as conditions, recorded by the Controllers/

SA will be advised to the Branch in the letter as guidelines to the Branch on

the conduct of the advance sanctioned.

f. While conveying sanction of loans/ advances to Borrowers, Branches should

write in detail all the T&C in clear terms by segregating the pre-disbursement

conditions from the post-disbursement conditions and the time stipulations, if

any, for compliance for the same.

g.

i) Monitoring Disposal of Credit Proposals

For monitoring disposal of credit proposals within the time frame stipulated by the Bank,

Branches should adopt the following procedure:

Loan applications received from Units should be acknowledged by Branches

immediately on receipt of the application and entered in the ‘Loan Application

Received and Disposal Register’; with care being taken to ensure that a segmentwise

serial number is generated.

After receipt of the loan application, an indicative checklist of data/ papers, etc. to be

furnished to the Bank may be given to the applicants.

The credit appraisal officers may ask, as far as possible, all relevant information in

one instalment and avoid piecemeal queries at various stages.

Every meeting/ interface with the applicants should be used to emphasise the need for

submission of complete particulars/ data to facilitate quick and timely disposal of loan

proposals.

The BM/ MoD should verify this register at periodic intervals.

Date and status of disposal of applications by way of sanction/ rejection (if

rejected, reasons therefor) should be recorded in the register.

Controllers should scrutinize this register during their visits to the Branches.

Each Branch will submit to its Controllers a monthly status report on pending

loan applications, indicating the reasons for the delay.

Statement of pending proposals at LHO.

Branches should not indulge in any act such as verbal promise or issue of any

consent letter to sanction loans pending formal sanction etc., which may give

false hopes to the prospective borrowers.

A Date Chart must accompany every proposal. It should be the responsibility of

the SA to ensure that this chart is completed at all levels.

If credit facilities applied for are wholly or partially rejected, the reasons for that

should be briefly mentioned in the ‘Loan Applications Received and Disposal

Register’.

In order to ensure that there is no delay in the disbursement of sanctioned

facilities and also to avoid any need to change the collateral security after

obtaining sanction, a preliminary scrutiny of the documents relating to the

property should be carried out at the Branch to ensure that the title is clear.

j) Pre-Sanction Process in Present Environment

Existing Accounts at Branch

For an existing account at a Branch:

Obtain request letter from the Unit/ Borrowers.

Compile Feedback Report, various Inspection and Audit Reports and Branch

comments thereon and Comments on Corporate Governance in case of Corporate

accounts.

Submit the value of accounts, viz., Interest, Exchange, Commission, Forex Sales and

Purchases, utilisation percentage of loans, comments on pro-rata share (for both

current and previous year), credit and debit summations, number of LCs issued/

devolved, number of BGs issued/ invoked, etc. in the Feedback Report.

Forward Unit’s request letter along with the Feedback Report, comments on I and A

Reports, CMA Data and last 3 years Audited Financials to Credit Processing Cell

(CPC)/ Small Enterprises Credit Cell (SECC) within 3 days.

k) Areas of Responsibilities at Branch

Following are the responsibilities taken up at the Branch to carry out the pre-sanction

process:

Customer identification, completion of Know Your Customer (KYC) formalities in

respect of new customers.

Compilation of Opinion Reports (on the Borrower as well as on the Guarantors).

Obtaining Opinion Reports from other banks/ FIs in respect of new customers and

Associate Concerns of the Unit.

Compilation of Group Profile.

Inspection of the collateral and assessment of value thereof.

1) Areas of Responsibilities at CPC/SECC

Following are the responsibilities taken up at the CPC/SECC to carry out the pre-sanction

process:

Appraisal, Assessment and Recommendations in respect of proposals coming under

their purview.

Presentation of proposal to CCC-II and above/ Zonal Office Credit Committee (ZCC)

for sanction/ approval.

·Advising of sanction/ approval to the Branch and the Unit.

Submission of Control Reports in respect of sanctions obtained by CPC/ SECC.

In case of proposals not considered acceptable, the CPC/ SECC will advise the Branch/Unit

accordingly after obtaining approval from the competent authority.

1.2 The Appraisal Process

Overview to Appraisal

As the name indicates, Appraisal is a process that determines the value of the proposal

Submitted by a Borrower for credit. The Appraisal process consists of the following stages:

a. Preliminary Appraisal

b. Detailed Appraisal

c. Present relationship with the Bank

d. Credit Risk Rating

e. Opinion Reports

f. Structure of facilities and Terms of Sanction

g. Review of the proposal

h. Proposal for sanction

i. Assistance to Assessment

a) Preliminary Appraisal

In case the Branch finds the proposal acceptable, it will call for a fully comprehensive

application in the prescribed proforma from the applicant.

In addition a copy of the proposal/ project report, covering specific credit requirement of the

Company and other essential data/ information is required. The other essential data include

the following:

o Organizational set-up with a list of Board of Directors

o Demand and supply projections along with a copy of the market survey report

o Current practices for the particular product/ service

o Estimates of sales, Cost of Production and Profitability

o Projected Profit and Loss Account and Balance Sheet for the operating years during the

currency of the Bank assistance

o If the request includes project financing, Branch should obtain additionally (i) Appraisal

report from FIs in case they have done appraisal; (ii) NOC from term lenders if already

financed by them and (iii) Report from Merchant Bankers in case capital market is being

accessed, wherever necessary.

In addition in respect of existing concerns, particulars regarding the history of the concern,

its past performance, present financial position, etc. should also be evaluated.

This data/ information should be supplemented by the following supporting documents:

o Audited Profit and Loss Account and Balance Sheet for the past 3 years

o Details of existing borrowing agreements, if any

o Credit information reports from the existing bankers on the applicant company

o Financial statements and borrowing relationship of Associate/ Group companies

The evaluation of all the aspects discussed till now constitutes the Preliminary Appraisal

stage. After the Preliminary Appraisal stage, the next stage is Detailed Appraisal.

b) Detailed Appraisal

After a pre-sanction inspection of the project site or factory in the case of existing units, the

Branch may take up the Detailed Appraisal exercise using the appropriate format. The

following aspects should be evaluated in Detailed Appraisal stage:

o The viability of a project should be examined to ascertain that the company would

have the ability to service its loan and interest obligations out of cash accruals from

the business.

o While appraising a project or a loan proposal, nothing should be taken for granted.

o All the data/ information should be checked and wherever possible counter checked

through inter-firm and inter-industry comparisons.

o Summarise the conclusions of the financial analysis carried out on the basis of the

Company’s Audited Financials for the last 3 years.

o The method of depreciation followed by the company – SLM, WDV Method or any other

method and whether the Company has changed the method of depreciation in the past and, if

so, the reason thereof

o Whether the Company has revalued any of its FA any time in the past and the present status

of the Revaluation Reserve, if any, created for the purpose

o Record of major defaults, if any, in repayment in the past and history of past sickness, if

any.

o The position regarding the Company’s tax assessment – whether the provisions made in the

Balance Sheets are adequate to take care of the Company’s tax liabilities.

o The nature and purpose of Contingent Liabilities, together with comments thereon

o Pending suits by or against the Company and their financial implications

o Qualified/ adverse remarks, if any, made by the Statutory Auditors on the Company’s

accounts

c) Present Relationship with the Bank

Credit facilities now granted

a. Conduct of the existing account

b. Utilisation of limits – FB and NFB

c. Occurrence of irregularities, if any

d. Frequency of irregularities, i.e. number of times and total number of days the account

was irregular during the last 12 months

e. Repayment of term commitments

f. Compliance with requirements regarding submission of Stock Statements, FFR

Reports, renewal data, etc.

g. Stock turnover, realisation of book debts

h. Value of account with break-up of income earned

i. Pro-rata share of non-fund and Forex business

j. Concessions extended and value thereof

d) Credit Risk Rating

The Bank has introduced a Credit Risk Assessment (CRA) system for an effective

administration of the Bank’s exposure to Credit Risk. All C&I loans and Commercial

Advance Accounts of above Rs. 25 lacs in respect of SSI and Agricultural advances are

covered by the revised system of CRA introduced w.e.f. 1st April 2004. The CRA for

financing Trade Advances and for NBFCs is as per the earlier instructions and modifications

are expected shortly, CRA is central to the credit appraisal process. Assets, which are

classified as Standard.

Assets –Performing Assets – only, are to be risk rated. Major parameters that are considered

for appraising the risk associated with a loan are categorised into Financial, Business,

Industry and Management risks. All these categories of risks are rated separately. In order to

arrive at the overall risk rating, the factors duly weighted are aggregated and calibrated on a

score of 100, to arrive at a single point indicator of risk associated with the credit decision.

The credit risk rating is drawn up for:

a. Working Capital

b. Term Finance

The overall score for risk rating is rated on an 8-point scale and the ratings are given as SB 1

to SB 8 for Working Capital Advances and SB TL 1 to SB TL 8 for Term Loans.

e) Opinion report

The following terms and conditions (T&C) for exposures proposed – facility wise and

overall, should be fixed well in advance:

i. Limit for each facility/sub-facility

Sub-limits for inventory and receivables within the overall assessed fund based Working

Capital credit limits are fixed for operational convenience. In cases where large build up of

any item of inventory or receivables is required and the reasons are acceptable, sub-limits

should be fixed in a flexible manner. In case of borrowers with credit rating SB 1 and SB 2, if

the borrower desires, no sub-limits are fixed. Within the overall assessed credit limits,

branches should fix separate limits for financing inland credit sales. In respect of borrowers

enjoying credit limits of Rs. 5 crores and above from the Banking system, minimum of 25%

of the finance for inland credit sales as Bill Purchase limits should be stipulated. To

determine the quantum of finance for inland credit sales, the aggregate credit limits will

comprise of all types of credit facilities extended for financing inland credit sales such as

cash credit/ sub-limit against book debts, bills purchased/ discounted limits, overdrafts/ cash

credit limit/ sub-limit against Government supply bills, as may have been made available

within the overall Bank finance limits sanctioned.

ii. Security Credit provided by Banks creates assets, which are called Primary Assets

or Securities. Any additional security provided is commonly known as Collateral

Security. Collateral securities could be in the form of tangible collateral securities

such as liquid collaterals or mortgage of immovable properties or intangible

collaterals such as Third Party Guarantee. The bank officials verify the securities

offered by the borrower before they are accepted for covering the credit facilities and

are stipulated as a part of the recommendation of the loan and as the terms and

conditions of sanction.

iii. Margin

The margin stipulations as per the extant guidelines that are also dependent on the nature of

the current assets offered as primary security are stipulated as a part of the terms and

conditions.

The bands of the margin are stipulated by the Bank within which, depending on the risk

perception of the primary security being offered such as Raw Materials, Stocks in process,

Finished Goods and Receivables, margins are fixed by the recommending authorities for

approval of the sanctioning authorities.

f) Structure of Facilities and Terms and Conditions of Sanction

The rate of interest will be generally based on the Credit Risk rating. In specific cases,

however, rate of interest can be fine tuned depending on the value of connections/ potential

for business development and profits and other strategic reasons. The necessary

recommendations for seeking concessionary rates of interest should form a part of the Credit

Proposal and put up to the appropriate authorities for necessary approval / sanction.

In case of loans up to Rs. 2 lacs, RBI regulates interest rates.

i. Rate of Commission

Depending on the value of connections, potential for business development and profits and

other strategic reasons, these rates are recommended as a part of the credit proposal for

approval of the appropriate sanctioning authorities.

ii. Concessional Facilities and Value of the Credit- As per the recommendations and

the approvals obtained from the sanctioning authorities, the terms and conditions

would stipulate the concessions offered.

iii. Repayment Terms In respect of term loans sanctioned, the instalments of the term

loans and the moratorium or start up period, which are permitted for the repayment of

the loan, are stipulated.

iv. ECGC Cover

In respect of units which have been sanctioned, export packing credit, which includes Pre-

shipment facilities and Post-Shipment facilities, the facilities are covered under the ECGC

Guarantees / Policies as per extant guidelines.

v. Other Standard Covenants

Apart from the usual terms and conditions of sanction of credit facilities, as contained in the

standard covenants of the Bank's loan documents, depending on the degree of financial

discipline required to be imposed, reasonable additional conditions are considered necessary,

in view of more than the normal risk perception of the loan proposal. However, while

recommending or sanctioning a loan, onerous terms and conditions that are difficult for the

borrowers to fulfil should not be stipulated. Special covenants in any particular case should

be discussed with the concerned borrowers, explaining the implications, so as to avoid the

necessity for modifying them subsequently. These covenants should be indicated in the

Appraisal Memorandum highlighting the rationale behind the stipulation.

g) Review of the Proposal

The review of the proposal should cover:

o Strengths and weaknesses of the exposure proposed

o Risk factors and steps proposed to mitigate them

o Deviations proposed from usual norms of the Bank and the related reasons

The draft proposal is put up to the assessing officer who gives a macro look to the proposal

and suggests various changes and inputs. Thus the gaps in the proposal, if any, are covered so

that the final proposal in the required format of submission to the sanctioning authorities is

prepared.

h) Proposal for Sanction Prepare a final proposal, incorporating the changes proposed by

the assessing officials, in prescribed format with required back-up details and with

recommendation for sanction.

i) Assistance to Assessment

In order to help Assessor, interact with the Assessor, provide additional inputs arising from

the assessment, incorporate these and required modifications in the draft proposal. Finally,

generate an integrated final proposal for sanction.

2. POST SANCTION

a. SANCTION OF CREDIT FACILITIES

Preparation of proposal in prescribed format with back-up details and with

recommendation for sanction

The competent authority will exercise the discretionary powers as delegated by

respective circle. The sanctioning authority to accord sanction of credit facilities on

terms proposed or by stipulating modified or additional condition/safeguards.

The sanction shall be reported for control to the next higher authority for review, as

required.

b. DOCUMENTATION

Following are the documents used under agriculture credit:

Hypothecation agreement

Deed of guarantee

Deed of mortgage

Letter to the borrower demanding repayment of crop loans

Supplemental hypothecation agreement

Supplemental deed of guarantee

Deed of extension of mortgage to cover the aggregate limit

Deed of mortgage by the guarantor

Revival letter for mortgage

c. CONTROL REPORTS

Control report to be submitted in duplicate

One copy shall be received by bank with comments of controlling

authority.

Attend the observation and submit reply to controlling authority.

d. POWER EXERCISED BY FO/ MOD

Control report to their controlling authority i.e. branch manager.

Simple listing to controller at month end

e. INSPECTIONS

Before making field visits to villages, field officials should jot down the

account-wise particulars e.g. ,total outstanding, over dues, last date of

credit and amount credited, interest applied in respect of each borrower in

relative folio of the village-wise inspection register.

Field visits and inspection would be so arranged that the bank official is

able to contact the borrowers a few days before the amount/ instalment is

due.

The field staff should draw up their tour programme wellin advance and

properly plan to maximize effectiveness by extensive coverage of the

financed villages.

In case of produce marketing loans against stock stored in farmer’s farm

house, stocks should be inspected at monthly intervals for loans above

Rs.25000/- and once in two month in other cases.

When produce is stored in a warehouse, periodical inspection of the goods

covered by the warehouse receipt is not necessary.

However, the branch manager should periodically obtain from the

warehouse man , a certificate in respect of the condition of goods covered

by the warehouse receipts and pledged to bank.

f. RECOVERY OF BANK DUES

In case of wilful defaults by a borrower, initiation of recovery proceedings

may be started without loss of time.

As farmers would have cash surplus during specified periods of the years,

timeliness of follow-up is crucial to recovery of agricultural dues.

Efforts for recovery should commence well in advance of the due dates.

The demand notices should be prepared in duplicate, original to be

dispatched to the borrower by ordinary post and other copy to be retained

as office copy.

g. INSURANCE

Except where the bank has agreed to dispense with insurance, fixed assets

and stocks under pledge/ hypothecation to bank must be kept insured for

full market value with an insurance company (private or public sector) or

at least to the extent of bank’s interest / lien noted therein.

Insurance of agricultural machinery / equipment, cattle, silkworm,

honeybee, poultry etc. is essential.

The policies must stand in the joint names of the borrower and the bank.

However insurance cover of vehicles/ tractor/ trailer/ power tiller should

be taken only in the name of the borrowers and Bank’s interest/ lien noted

therein.

National Agriculture insurance Scheme is implemented for providing

insurance coverage to all farmers including share croppers and tenant

farmers growing notified crop in notified area.

The scheme for crop insurance is available to farmers as well as non-

loanee farmers irrespective of the size of holding.

Findings:-

State bank of India is strictly following the guidelines of RBI on Project Financing.

Sanctioning for the projects is approved by RASMECC (Retailed Assets Small and

Medium Enterprises Credit Cell).

The bank finances the projects only through term loans.

Interest rates are fixed depending upon the projects which is known as State Bank

advance rate.

When the clients fail to pay the interest, 3 months from the due date the term loan

granted will be treated as Non-Performing Assets.

If the interest is due further 3 more months then it will be treated as doubtful assets

and interest rates becomes zero.

Again for further 3 months it goes as loss assets and the bank write off the account.

CHAPTER-4

SWOT ANALYSIS

Strengths

Brand Name:-SBI Bank has earned a reputation in the market over the period of time(Being

the oldest bank in India tracing history back to 1806).

Market Leader:-

SBI is ranked at 285th in 2012 Fortune Global 500 list. With an asset base of $501 billion and

its reach, it is a regional banking behemoth.

Wide Distribution Network: Excellent penetration in the country with more than branches

more than 15003 branches of associate banks (subsidiaries).

Diversified Portfolio

SBI Bank has all the products under its belt, which help it to extend the relationship with

existing customer’s Bank has umbrella of products to offer their customers, if once customer

has relationship with the bank. Some Products, which SBI Bank is offering are: Retail

Banking Business Banking Merchant Establishment Services (EDC Machine) Personal loans

& Car loans Insurance Housing Loans

Government Owned:-

Government owns 60% stake in SBI. This gives SBI an edge over private banks in terms of

customer security.

Low Transition Costs-SBI offers very low transition costs which attracts small

customers.

SBI is the largest bank in India in terms of market share, revenue and assets.

Weakness Lack of proper technology driven services when compared to private banks.

Employees show reluctance to solve issues quickly due to higher job security and

customers’ waiting period is long when compared to private banks.

The bank spends a huge amount on its rented buildings.

SBI has the largest number of employees in banking sector; hence the bank spends a

considerable amount of its income in employee’s salary compensation.

In spite of modernization, the bank still carries the perception of traditional bank to

new age customers.

SBI fails to attract salary accounts of corporate and many government sector

employees salary accounts are also shifted to private bank for ease of operations

unlike before.

Opportunities SBI’s merger with five more banks namely State Bank of Hyderabad, State bank of

Patiala, State bank of Bikaner and Jaipur, State of bank of  Travancore and State bank

of Mysore are in approval stage.

Mergers will result in expansion of market share to defend its number one position.

SBI is planning to expand and invest in international operations due to good inflow of

money from Asian Market.

Since the bank is yet to modernize few of its banking operations, there is a better

scope of using advanced technologies and software to improve customer relations.

Young and talented pool of graduates and B schools are in rise to open new horizon to

so called “old government bank”.

Threats Net profit of the year has decline 13.6 per cent drop in net profit to Rs 3,241 crore in

the fiscal first quarter compared with Rs 3,752 crore a year ago.

This shows the reduction in market share to its close competitor ICICI.

Other private banks like HDFC, AXIS bank etc.

FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as

people tend to switch to foreign banks for better facilities and technologies in banking

service.

Other government banks like PNB, Andhra, Allahabad bank and Indian bank are

showing.

Customer prefer to switch to private banks and financial service providers for loans

and mortgages, as SBI involves stringent verification procedures and take long time

for processing.

SUGGESTION

Banks has to grant the loans for the establishment of business at a moderate rate of

interest. Because of this, the people can repay the loan amount to bank regularly and

promptly.

Bank should not issue entire amount of loan to agriculture sector at a time, it should

release the loan in instalments. If the climatic conditions are good then they have to

release remaining amount.

SBI has to reduce the Interest Rate.

SBI has to entertain indirect sectors of agriculture so that it can have more number of

borrowers for the Bank.

CONCLUSION:

The project undertaken has helped a lot in gaining knowledge of the PRE-SANCTION &

POST SANCTION AGRICULTURE LAND’ in Nationalized Bank with special reference

to State Bank Of India. Pre-sanction and Post sanction in the agriculture land of the Bank has

become very vital in the smooth operation of the banking activities. Agriculture credit

scheme of the Bank provides the growth of agriculture sector (a) whether to provide by the

agri loan (b) how much credit to extend. The Project work has certainly enriched the

knowledge about the effective management of “Agriculture loan” and “Different agriculture

credit schemes” in banking sector.

“Pre & post sanction of land” and “agri. Credit schemes” is a vast subject and it is

very difficult to cover all the aspects within a short period. However, every effort

has been made to cover most of the important aspects, which have a direct bearing

on improving the financial performance of Banking Industry

To sum up, it would not be out of way to mention here that the State Bank Of India

has given special inputs on “Agriculture loan” and “Credit Risk Management”. In

pursuance of the instructions and guidelines issued by the Reserve Bank of India,

the State bank Of India is granting and expanding credit to all sectors.

The concerted efforts put in by the Management and Staff of State Bank of India has

helped the Bank in achieving remarkable progress in almost all the important

parameters. The Bank is marching ahead in the direction of achieving the Number-1

position in the Banking Industry.

REFERNCES

BOOKS REFERRED:

1. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill.

2. M.Y.Khan and P.K.Jain, Financial Management (Fourth Edition), Tata McGraw Hill.3. D.M.Mittal, Money, Banking, International Trade and Public Finance (Eleventh

Edition), Himalaya Publishing House.

WEB SITES

1. www.sbi.co.in2. www.icicidirect.com3. www.rbi.org4. www.indiainfoline.com5. www.google.com

BANKS INTERNAL RECOREDS:

1. Annual Reports of State bank Of India (20011-20014)2. State bank Of India Manuals3. Circulars sent to all Branches, Regional Offices and all the Departments of Corporate

Offices.